Legal Question in Real Estate Law in California

Re: foreclosure Vs Short sale

As to your first question: It's a gamble choosing between short sale and foreclosure, because you never know what will happen at the foreclosure sale. You might get more or less than you expect. The right answer probably depends as much on business or real estate advice as on legal advice.

As to the second question, you're asking about what is called a deficiency judgment. A lender can go after the borrower for a deficiency in only limited circumstances. If the loan being foreclosed was a purchase-money loan, or if the foreclosure is conducted as a trustee's sale, the lender cannot seek a deficiency judgment. So, in order for conditions to exist where a deficiency can be pursued, the lender would have to be (1) foreclosing a refinancing loan, AND (2) go to court for a judicial foreclosure.

Keep in mind that if the loan being foreclosed is a first, and there are one or more junior loans on the property, the holders of the junior loans lose their collateral, but they become unsecured creditors and can go after you for the balance due them.